Prudential resilience: The foundation of good outcomes
A significant part of the FCA’ s review focused on prudential soundness, particularly on how acquisitions are financed and how debt is then managed across groups. The regulator expects consolidators to demonstrate strong financial resilience not only at group level, but also within each regulated entity. Insufficient focus and financial fragility at group level can quickly translate into poor client outcomes through cost-cutting, service disruption or an inability to meet potential redress liabilities. The message seems clear, prudential resilience underpins Consumer Duty obligations. Firms cannot deliver good outcomes if their financial foundations are weak.
Beyond the balance sheet: Conduct, culture and governance
Importantly, the FCA’ s findings go well beyond capital adequacy. They reinforce expectations around conduct, governance, operational resilience and firm culture, areas where compliance functions play a key defining role in supporting consumer outcomes.
Due diligence that genuinely identifies risk
Effective due diligence is more than a tick-box exercise. Firms are expected to identify and evaluate risks within potential targets across a number of key areas, including legacy advice, annual reviews, complaints histories, redress exposure, operational( and resource) capability and cultural alignment. Independent third-party due diligence, including a review of advice suitability, is viewed as good practice, but findings should be properly understood and reflected in any acquisition decisions. It is not uncommon for, and Simplybiz has witnessed the FCA requesting evidence of acquisition due diligence and the actions planned( or taken) in respect of risks identified during the exercise.
Simplybiz are able to fully support firms who are looking to acquire another business in undertaking comprehensive Regulatory Due Diligence and providing a detailed report highlighting risks and potential mitigations.
Integration planning and resourcing
Post-acquisition integration is an important and often highrisk phase for acquiring firms. Clear, disciplined integration plans are crucial to ensure as smooth a transition as possible. As advice firms grow, compliance, risk and operational resources should scale accordingly to ensure that key responsibilities( such as ongoing reviews) are delivered, legacy issues are addressed and regulatory obligations continue to be fully met. We have noted several acquisitions where a significant resource injection has been required to review and realign portfolios where client attitude to risk has not been regularly updated and to address undelivered client reviews. This is typically something that Simplybiz can support as part of the due diligence process.
Risk and compliance maintaining pace with evolution
As firms consolidate, their compliance frameworks must evolve to meet the continuing needs of an expanding business. This means scalable systems and controls, the provision of meaningful management information and the ability to effectively monitor emerging risks across the group. Compliance and focus on regulatory responsibility should not lag behind commercial ambition. Our consultancy services team can provide bespoke support in respect of reviewing systems and controls, highlighting potential risks and providing appropriate solutions.
Governance and effective oversight
Effective governance is about more than structures and committees. Senior management must have the skills and experience to manage increased complexity, supported by independent challenge. Decision-makers should have clear sight of how group-level strategies affect regulated entities and client outcomes.
Conflicts of interest
Consolidation often introduces potentially new conflicts, such as vertical integration and group-wide product strategies. The FCA expects these to be identified, actively managed and monitored, with client interests always taking precedence over commercial incentives. There are suitable Conflict of Interest policy templates available on the Simplybiz website to help set up internal policies and procedures. We would also recommend at least an annual internal‘ Conflict of Interest establishment’ exercise to determine whether there are any new, emerging conflicts which will need to be managed.
The role of the vendor
While much regulatory commentary focuses on buyers, selling firms also carry significant responsibilities. This is particularly true in client bank sales, where liability transfer can be less clear-cut than in a share sale.
The FCA set out its expectations for firms selling client banks in December 2023, highlighting concerns about“ polluting
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